Canadian Money Forum banner
21 - 27 of 27 Posts

·
Registered
Joined
·
1,224 Posts
An advisor using planning software that considers the tax impacts could probably do a reasonable job of analyzing this. I think the objective of the analysis should be to maximize the real present value of all withdrawals for a given estate size, or conversely, maximize the estate size for a given withdrawal rate. It needs to take into account the annual tax on investment income in non-registered accounts, then the capital gains that are eventually due when securities are sold or deemed disposition of the estate. That has to be balanced against the fact that that there are never any taxes on investment income or capital gains in a RRSP, but if RRSP/RRIF withdrawals are large enough they may push the tax rate high enough that it overwhelms the additional tax in non-registered accounts. But a lot of individuals just compare the tax on RRSP withdrawals to the tax on realized capital gains in non-registered accounts, forgetting that RRSP balances are in pre-tax dollars, whereas non-registered balances are after income tax was paid on earnings. Another complication is that RRSPs can lower other income-tested entitlements like GIS, OAS and Ontario Trillium Benefit. Then there are those pesky assumptions about life expectancy, rate of return and future tax rates. Tough to capture all that in a spreadsheet or by gut feel.
 

·
Registered
Joined
·
498 Posts
This is the second time in three days that you have linked to this video.
[RRSP to TFSA alleged to be tax free video]

The last time, @Eclectic21 pointed out it promotes a dubious strategy that may be offside with the CRA.
From what I recall of the video, it check off most, if not all of the boxes that the CRA warning has in it's description.

The "tax free" part as well as the differences in mortgage rates being "usual business" IMO does not pass the smell test. :rolleyes:

I'm confident that it's more than a "may" be offside.


Cheers
 

·
Registered
Joined
·
706 Posts
From what I recall of the video, it check off most, if not all of the boxes that the CRA warning has in it's description.

The "tax free" part as well as the differences in mortgage rates being "usual business" IMO does not pass the smell test. :rolleyes:

I'm confident that it's more than a "may" be offside.


Cheers
The CRA warning is dated May 2021 but those two videos are still up with recent comments and replies that the strategy is legitimate.

So I wonder how many cases are currently being audited, investigated or in court. And if there are any concluded, how many CRA has won and how many lost.

For cases where CRA has won, you'd think the investment company would make adjustments to make their strategy perfectly legal. Otherwise, they are performing an illegal activity.

And finally, when CRA does start auditing the individual, how much resource will this financial advisor give to the individual to fight or defend it or is the individual left on his own?
 

·
Registered
Joined
·
24 Posts
…,the objective of the analysis should be to maximize the real present value of all withdrawals for a given estate size, or conversely, maximize the estate size for a given withdrawal rate.
I feel like you’re on to an important perspective for an analysis, but how would someone communicate the 2 to a potential planner?
Can you elaborate or maybe provide a simplified example?
Thanks.
 

·
Registered
Joined
·
610 Posts
I feel like you’re on to an important perspective for an analysis, but how would someone communicate the 2 to a potential planner?
Can you elaborate or maybe provide a simplified example?
Thanks.
In general people have an accumulation phase and a draw down phase (when they are reliant on investment income to meet lifestyle expenses). By the time one gets to the end of the accumulation phase they need enough saved up to fund the rest of their life. A good planner will prepare a capital sufficiency analysis, also called a capital needs analysis, that tells one how much they need at retirement. It's essentially the foundation of what a good planner should do as a matter of course. It takes your spending requirements in retirement, pension if applicable, additional capital requirements (and timing) for specific goals (eg buy second property, fund kids home purchase down payment), joint life expectancy (based on actuarial tables) and incorporates inflation expectations related to the type of spending. Then discounts it back to the start of retirement.

With the above analysis in mind they will optimize the selection of investments to grow in the appropriate accounts with an objective of both building sufficient funds and having those funds in the appropriate account type to tax efficiently fund withdrawals over the course of the retirement phase.
 

·
Registered
Joined
·
1,224 Posts
I feel like you’re on to an important perspective for an analysis, but how would someone communicate the 2 to a potential planner?
Can you elaborate or maybe provide a simplified example?
Thanks.
Some advisors can do financial planning, taking inputs (income, age, existing savings and assets, spending rates during accumulation and retirement) and assumptions (rate of return, inflation, life expectancy, tax rates) and create a financial plan showing assets, income and spending through to an assumed life expectancy. The planning software should be able to model the most effective and tax-efficient way of saving and spending. Then they can run different scenarios, for example one with continued RRSP contributions vs one that stops RRSP contributions and diverts the savings to TFSA and/or non-registered accounts, to show which scenario gives the highest estate value without changing other assumptions.

For example, look at this link and scroll about 1/4 down the page to where it shows best strategy, runner up and second runner up. Note I am just using this as an example, not specifically recommending this software.
Home - Cascades Financial Solutions (cascadesfs.com)

Not all advisors can or are willing to do such detailed planning.
 

·
Registered
Joined
·
498 Posts
The CRA warning is dated May 2021 but those two videos are still up with recent comments and replies that the strategy is legitimate ...
Not sure why you'd think the videos would necessarily be taken down.
I can remember people complaining about the fallout from the "pay for drugs for $1 then donate them for a $20 charitable receipt" while groups still had web sites up promoting the scheme.


... So I wonder how many cases are currently being audited, investigated or in court. And if there are any concluded, how many CRA has won and how many lost.
I suspect CRA is getting started.


... For cases where CRA has won, you'd think the investment company would make adjustments to make their strategy perfectly legal. Otherwise, they are performing an illegal activity.
Where they plan to disappear with the money, I'm not sure they care.


... when CRA does start auditing the individual, how much resource will this financial advisor give to the individual to fight or defend it or is the individual left on his own?
Time will tell. From what I recall of posts of people outlining their experience with the drug scam, CRA re-assessed years later (with penalties) where the promoter gave no resources to fight it and disappeared.

Cheers
 
21 - 27 of 27 Posts
Top